What are the most important inputs to take into consideration when thinking through product differentiation?

There are several inputs I think about when considering product differentiation:

1. Specific target customer - There are many types of customers in a market. Who are you serving? Try to narrow your focus as far as you can to understand the specific problems faced by this customer to be as tailored to their needs as possible. Has a particular customer type been ignored or underserved in the market? If so, why? What value are they seeking but not able to find with existing products?

2. Specific value delivered - The inherent "why" customers use your product. Regardless of how many features/"bells and whistles" you think customers want on your roadmap, there are generally much fewer reasons why they use your product. What is the CORE reason? That is your moat. Stengthen and defend this core value proposition to the best of your ability before adding more stuff. This value is the point of view you solve your customer's biggest problem - don't lose sight of it, or you'll start solving problems that don't matter.

3. Market maturity - Is this a new market? Is this a mature market? Hugely different considerations. In mature markets, the incumbents have defined what good looks like, or what customers expect. Incumbents will lage behind new entrants in not adapting quickly enough to new customer expectations, and new entrants may not accommodate the existing requirements fully enough. This is a hugely delicate balance to strike. This goes back to #1 - who in the market are you serving? Then, adjust accordingly. 

4. Competitive benchmarking - You have to know why your customers choose other vendors. You have to understand why sales loses deals to these competitors. What value do they derive from these vendors. This is more of a general understanding of where you fall in the market to understand if there is a difference between your positioning and market perception.

5. Ease of use - Making something easier to use is itself a product differentiation strategy. I like to think of the two axes here to be - 1) how powerful is the product and 2) how easy is it to use? - and then determine where my product falls within and these two axes. Upper right quadrant - easiest to use and most powerful. Highly differentiating, but pretty rare. Go back to that target customer - how technical are they? What do they care more about? What do other solutions make hard for their customers that I can reduce as a pain point? Apply.

6. Pricing and packaging - This could be an entire AMA itself. Think of pricing as another way to leverage strategy. Charge for the value delivered in the product. What do I mean by that? Charge more when customers get more value out of the product, so you align product incentives with your customers. The trick here is to pick the metric that best represents value in your market, for your customers. Options? # of users, # of things in product consumed, # of things I can apply the product to, etc.

Product differentiation is not about a feature laundry list; it is about ensuring you are addressing a key business problem. So instead of starting at we need to build features A, B, and C that our competitors don't have; start with the business problem. Then ask how we can leverage product differentiation to reach the business goal faster, better or cheaper. This way it ensures you are solving the underlying cause and not just the symptoms.

• If you are in a 0 to 1 category, the main business problem to address is educating the market that there is a problem worth solving and you are the solution.
• In a crowded marketplace, there may be existing leaders whom you want to take market share away from or you may be defending your leadership positioning.

There are many inputs you can consider (target customer, market, competition, geo etc) in product differentiation; starting with the business problem as the main input will arm you with the right goals to move your company forward.